nationalization

nationalization,

acquisition and operation by a country of business enterprises formerly owned and operated by private individuals or corporations. State or local authorities have traditionally taken private property for such public purposes as the construction of roads, dams, or public buildings. Known as the right of eminent domain, this process is usually accompanied by the payment of compensation. By contrast, the concept of nationalization is a 20th cent. development that differs from eminent domain in motive and degree; it is done for the purpose of social and economic equality and is usually, although not always, applied as a principle of communistic or socialistic theories of society. The Communist states of Eastern Europe nationalized all industry and agriculture in the period following World War II. Under the Labour government of the period 1945 to 1951, Great Britain nationalized a number of important industries, including coal, steel, and transportation. In non-Communist countries it has been common practice to compensate the owners of nationalized properties, at least in part; however, in the Communist countries, where private ownership is opposed in principle, there usually has not been such compensation. Nationalization of foreign properties has occurred, especially in developing nations, where there is resentment of foreign control of major industries. Instances include Mexico's seizure of oil properties owned by U.S. corporations (1938), Iran's nationalization of the Anglo-Iranian Oil Company (1951), the nationalization of the Suez Canal Company (1956) by Egypt, and Chile's nationalization of its foreign-owned copper-mining industry (1971). Such expropriations raise complex problems of international law. In some cases disputes over nationalization are settled by adjudication, with the expropriated parties obtaining compensation for their former properties, if only in part. In other instances, where no compensation is offered, severe strain in international relations may arise. The International Court of Justice ruled (1952) in the Anglo-Iranian Oil Company dispute that a concession made by a state to a foreign corporation is not an international agreement and is subject to the law of the conceding state—meaning that investors must assume the risk of nationalization in the country in which they invest, and developing nations have held that nationalization is a right implied by the UN Charter.

Privatization, the reverse process, has become widespread, however, with socialism's loss of credibility. Great Britain sold off many of its public companies, such as British Telecom; France sold 65 state-owned companies in 1988; and the collapse of Communist dictatorships in E Europe and the former Soviet Union has inspired large-scale privatization in some of the nations in that region, in some instances after distributing government shares to the public. Housing has also been privatized on a large scale in Britain, and privatization has been proposed for public housing in the United States. Developing nations, too, have begun to privatize. In the United States, the term has also been broadly applied to the contracting out of the management of public schools, prisons, airports, sanitation services, and a variety of other government-owned institutions, especially at the state and local levels.

nationalization

Nationalization

the transfer of land, industry, transportation, communications, and banks from private ownership to state ownership. The socioeconomic and political content of nationalization differs, depending on the class in whose interests it is carried out and on the historical epoch.

In the feudal epoch appropriation by the state promoted the centralization of power in the struggle against the feudal lords. It also strengthened the monarchy and concentrated the principal form of wealth, land, in the hands of the state. During the bourgeois revolution the nationalization of the land helped eliminate the economic basis for feudalism and accelerate capitalist development. The rapid development of capitalist productive forces in the second half of the 19th century caused the scale of various spheres and branches of the economy to outgrow the framework of private property. In many countries this led to nationalization of the means of transportation and communication in the interests of economic development or for political (military strategic) and fiscal purposes. Under capitalism, nationalization may be either progressive or reactionary, as was pointed out by F. Engels. Nationalization is progressive only if it is called for by the needs of the developing productive forces, “for only when the means of production and distribution have actually outgrown the form of management by joint-stock companies, and when, therefore the taking them over by the state has become economically inevitable, and then—even if it is the state of today that effects this—is there an economic advance, the attainment of another step preliminary to the taking over of all productive forces by society itself (K. Marx and F. Engels, Soch,. 2nd ed., vol. 20, p. 289, note). Engels emphasized that nationalization under capitalism does not eliminate the capitalist nature of productive forces and production relations, because the capitalist state “is essentially a capitalist machine, the state of the capitalists, the ideal personification of the total national capital” (ibid., p. 298). Nonetheless, he pointed out that the nationalization of large enterprises is evidence of the obsoleteness of the bourgeoisie in controlling modern productive forces.

The transition from capitalism to socialism provides for the elimination of private capitalist ownership and the establishment of public ownership of the means of production. A necessary prerequisite for socialist nationalization is the victory of a socialist revolution and the establishment of the power of the working class and the toiling peasants. The necessity of socialist nationalization has been profoundly substantiated in theory in the works of Marx, Engels, and V. I. Lenin. Its applicability to the present age has been developed in the program documents of the CPSU and the other Communist and workers’ parties, and its necessity has been confirmed by the experience of building socialism in the USSR and the other socialist countries. In the Communist Manifesto, Marx and Engels wrote: “After the victory of the socialist revolution the proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeoisie, to centralize all instruments of production in the hands of the State, i.e., of the proletariat organized as the ruling class; and to increase the total of productive forces as rapidly as possible” (ibid., vol. 4, p. 446).

When it abolishes capitalist property, the proletarian state permits the payment of compensation to the owners of the means of production that have been nationalized. Marx and Engels pointed out that under certain conditions this is not only permissible but also expedient. Scientific communism considers the transfer of the means of production into public ownership to be a law of the socialist revolution. The forms and methods of this transfer, however, depend on concrete conditions. Lenin fully concurred with this important thesis. He believed that the transformation of capitalist private property into socialist public property may be done peacefully, without depriving the bourgeoisie of all property rights. Indeed, the bourgeoisie may be enlisted in the service of the workers’ and peasants’ state. Lenin pointed out that during the period of the revolution, capitalist resistance can be broken by nationalizing the property of a few hundred, or, at the most, 1,000–2,000 millionaires. “Even this tiny group of wealthy people need not have all their property rights taken away from them; they could be allowed to keep many possessions in the way of consumption articles and ownership of a certain modest income” (Poln. sobr. soch., 5th ed., vol. 32, p. 122).

Marxism-Leninism draws a strict distinction between large-scale and small-scale private ownership of the means of production. Large-scale capitalist ownership not based on labor is subject to nationalization in the course of socioeconomic transformations. The small-scale property of peasants, craftsmen, and artisans is not nationalized but is collectivized during the establishment of cooperative enterprises. In addition to substantiating the law of abolishing capitalist ownership of the means of production and replacing it with public ownership, Marxism has pointed out the ways in which this revolutionary change in socioeconomic relations may be carried out. Marx and Engels believed that private ownership cannot be wiped out all at once, that the expropriators are not expropriated overnight.

Lenin, who worked out the policy-making questions of the socialist revolution under new historical conditions, defined the basic ways and methods of socialist collectivization of the means of production: nationalization of the property of large-scale and middle-level capitalists and gradual conversion of the private property of the petite bourgeoisie into public property. Nationalization of the basic means of production by the proletarian state is a crucial revolutionary measure that brings production relations into line with the level and character of development of productive forces. It puts the means of production into the hands of the true masters, the working people, and ensures the genuine liberation of the working people from exploitation. By means of nationalization the working class takes over the machinery of production and the key industries, deprives the bourgeoisie and landowners of the economic basis for their domination, and carries out fundamental transformations in the socioeconomic order. The proletarian state gains key positions in the economy primarily by nationalizing the most important branches.

A crucial role in the establishment of socialist ownership is played by nationalization of the banks, without which it is impossible to deprive the bourgeoisie of their economic power and organize socialist production and distribution of products according to a solid plan. Nationalization of foreign trade and the establishment of a foreign-trade monopoly make it possible for the socialist state to protect itself against penetration and economic sabotage by foreign capital and to consolidate its independence and self-reliance. Because it eliminates vestiges of feudal and capitalist relations in agriculture and creates major opportunities for the development of socialist agriculture on the basis of peasant cooperative farms, nationalization of the land is very important. Without the nationalization of industry, transportation, and communications, the material basis for a socialist economy cannot be created. Nationalization of the most important sectors of the national economy lays the foundation for the economic self-reliance of the socialist state and accelerates its socioeconomic development.

Soviet Russia. After the victory of the October Revolution of 1917 the working class began to carry out socialist transformations. Nationalization of the land, the mineral resources, the waters, and the forests was proclaimed in the Decree on Land on Oct. 26 (Nov. 8), 1917. Private ownership of land was abolished, the land was proclaimed state property (the property of the whole people), and 150 million hectares (ha) were distributed to the peasants free of charge. Socialist nationalization of the land, which was carried out in the interests of the exploited working masses in the countryside, became the economic basis for the establishment of cooperative peasant farms. It has best “ensured the carrying of the bourgeois-democratic revolution to its conclusion.... In addition . . . [it] has given the proletarian state the maximum opportunity of passing to socialism in agriculture” (Lenin, Poln. sobr. soch., 5th ed., vol. 37, p. 327). Nationalization of the land was very important for the period of building socialism, for the further development of Soviet society, and for the solution of contemporary agricultural problems.

The nationalization of the banks, which began with the takeover of the State Bank of Russia and the establishment of control over private banks, was a very important measure. Lenin considered such control a transitional stage in the move toward nationalization, which would enable the working people to acquire control of finances for socialist construction. However, sabotage by the bankers forced Soviet power to speed up the nationalization of the banks. Private commercial banks were nationalized by a decree issued on Dec. 14 (27), 1917, by the All-Russian Central Executive Committee. A state monopoly on banking was established. Under a decree issued on Jan. 23 (Feb. 5), 1918, by the Council of People’s Commissars, their capital was turned over to the State Bank (Gosbank) in full and without compensation. The merger of the nationalized private banks and the State Bank into a single People’s Bank of the RSFSR was completed by 1920. Links in the tsarist banking system, such as mortgage banks and mutual credit societies, were abolished. Nationalization of the banks made it easier for the Soviet state to fight hunger and economic devastation. The socialist banking system was established during the process of nationalization.

The nationalization of the banks was the most important step in preparing for the nationalization of industry, because it gave the state a powerful lever for influencing the development of industry, transportation, and other branches of the economy. On Nov. 14 (27), 1917, the All-Russian Central Executive Committee and the Council of People’s Commissars published the Statute on Workers’ Control, which was a preparatory step for the nationalization of industry.

There were several stages in the nationalization of industry in Soviet Russia. The first stage (November 1917-February 1918) was characterized by rapid nationalization and initiative by local government bodies. On Nov. 17 (30), 1917, the first enterprise was nationalized—a factory in Likino (Vladimir Province) belonging to A. V. Smirnov’s Likinskaia Textile Association. According to figures from the industrial and occupational census of 1918, a total of 836 enterprises were nationalized between November 1917 and March 1918. During this period, which became known as the Red Guard Attack on Capital, the rate of expropriation of factories and plants exceeded the rate at which the administration of nationalized enterprises could be established.

During the second stage of nationalization (March-June 1918) the center of gravity of party economic and political work shifted from expropriation of the bourgeoisie to consolidation of gains, to putting records and control systems in order, and to organizing the management of nationalized industry. Characteristic of this stage were the collectivization of entire branches of industry and the creation of the conditions for the nationalization of all large-scale industry. On May 2, 1918, the Council of People’s Commissars issued a decree on the nationalization of the sugar industry, and on June 20, a decree nationalizing the petroleum industry. With the participation of Lenin, a conference of representatives of nationalized machine-building plants adopted a decision in May 1918 to nationalize the transportation machine-building plants. During the second stage of nationalization 1,222 industrial enterprises were nationalized.

The third stage of nationalization (from the decree of June 28, 1918, to June 1919) was marked by an intensification of the organizing and managing role of the Soviet state and its economic agencies in the implementation of socialist nationalization. By the autumn of 1918, 9,542 enterprises were concentrated in government hands. All large-scale capitalist ownership of the means of production had been nationalized by outright confiscation. The rate of nationalization rose sharply in the summer of 1919. In addition to large-scale industries, all medium-sized and most small industrial establishments were transferred to the state. The acceleration of nationalization resulted from the need to mobilize all available production resources during the Civil War of 1918–20. When territory was liberated from the counterrevolutionary forces and interventionists the force of laws on nationalization was restored.

The primary means of transportation were nationalized quickly during 1917–18, contributing to a high level of concentration of capital and to the predominance of government railroads. In January 1918 the nationalization of maritime and river transportation was completed, and in the autumn of 1918 private railroads were nationalized.

Nationalization marked the beginning of the establishment of a socialist structure in the Soviet economy and the establishment of socialist production relations. It promoted the establishment of the system of planned national economic development. Nationalization, as well as the foreign-trade monopoly and the annulment of foreign loans, laid the foundation for the economic independence of the USSR.

The foreign socialist countries. The specific features of nationalization in the foreign socialist countries arise from the international situation of these countries and from the character of the transition to socialism, the alignment of class forces, and various historical and economic characteristics. Because of tradition and the deep attachment of the peasants to private landownership, nationalization of the land has been only partially instituted in these countries, with the exception of the Mongolian People’s Republic. Most of the land confiscated from the gentry and from large-scale landowners during the agrarian reforms has been turned over to the working peasants.

Following the experience of the USSR, the foreign socialist countries have nationalized the banks. In most countries this has taken place in two stages. Banks of issue and large commercial banks owned by the bourgeoisie who had links with foreign capital were nationalized in the first stage, during the implementation of democratic, anti-imperialist, and antifeudal transformations. All other credit institutions were put under the supervision of the state banks of issue. In the second stage, that of socialist transformations, the nationalization of the banks was completed, and a state monopoly on banking was established.

In Bulgaria all foreign and private banks owned by the bourgeoisie, which had collaborated with the fascists, were nationalized in 1946, and in December 1947 all private banks were taken over. In Hungary the bank of issue was nationalized in 1945, and control of the private banks was instituted. Nationalization was completed in 1948. In Rumania the bank of issue was nationalized in 1946, and control was instituted over more than 450 private banks and banking offices, which were subsequently nationalized in 1948. After the formation of the German Democratic Republic (GDR), private banks continued to function but were placed under the control of the people’s power. With the transition to socialist construction, they were nationalized (1952–53). Most of the banks in Poland were closed during the fascist occupation. By the decree of Oct. 25, 1948, all private credit establishments were abolished, and a state monopoly of banking was established. The banks in Czechoslovakia were nationalized in 1945. In Yugoslavia banks belonging to members of the fascist occupation and to collaborators were nationalized in 1944, and all private commercial banks were nationalized in 1945.

In the People’s Republic of China most of the banks were nationalized immediately after the establishment of people’s power, but some small private banks were transformed into mixed state-private banks under the supervision of the People’s Bank of China. In Cuba all private banks, including branches of the largest American banks, were nationalized immediately after the establishment of people’s power in 1960. In the Democratic Republic of Vietnam the state banking system began to develop during the period of the anti-imperialist revolution, when foreign banks began to curtail operations.

In a number of countries (in particular, Czechoslovakia, Hungary, and Rumania) bank owners who supported the measures adopted by the people’s power received partial compensation in the form of purchases of stocks by the people’s power.

In most of the foreign socialist countries the first industrial enterprises to be nationalized were those belonging to the monopolies of Germany and its allies and to collaborators. The economic power of the large-scale capitalists was undermined considerably, facilitating the preparation for and implementation of the further collectivization of the means of production. As a result of the nationalization of industry, the economic gains made by the working people in 1944–45 during the period of liberation were consolidated in legislation. The big industrial bourgeoisie was deprived of the means of production. The rate of nationalization of industry varied from country to country. Unlike the USSR, which had nationalized large-scale and medium-sized industry almost simultaneously, the foreign socialist countries carried out nationalization gradually, usually in stages, and made more extensive use of worker control, state capitalism, and other transitional forms. In the European socialist countries the laws on nationalization provided for the payment of some compensation to the owners of expropriated enterprises. Nationalization resuled in the establishment of a socialist structure that came to dominate the national economies of the foreign socialist countries.

The developed capitalist countries. In the developed capitalist countries nationalization is a manifestation of state-monopoly capitalism that results from a number of factors, including concentration of production and pressure from the working masses. Associated with the general crisis of capitalism is a strengthening of state-monopoly capitalism, which stimulates intervention by the capitalist state in the process of reproduction in the interests of the monopolies and the financial oligarchy. The first branches of the economy to be nationalized are the war industries, the key branches of the national economy, and branches that require enormous capital investments over long periods of time (fuel and energy, including atomic energy; transportation; and other branches of the infrastructure). The former owners of nationalized enterprises usually receive considerable compensation, and sometimes more than the value of the property nationalized. Bourgeois nationalization does not change the essence of the capitalist system because it does not convert the nationalized means of production into public property. Consequently, it does not ensure the planned development of the national economy or change the character of distribution. It is often a method of transferring to the working masses the burden of financing capital-intensive and inefficient branches and enterprises.

The Communist parties realize that under certain conditions, nationalization may be used to limit the omnipotence of the monopolies, improve the position of the working people, establish democratic checks on the nationalized sectors of production, and democratize their administration. In the 1950’s and 1960’s the Communist parties in the capitalist countries developed reform programs emphasizing the demand for democratic nationalization. Consistent implementation of these programs by means of the class struggle will undermine the power of capital and create the prerequisites for socialist transformations.

The theoretical foundation for nationalization of the land under capitalism was laid by Marx’ doctrine of land rent. Under capitalism, large-scale private ownership of landed property hinders rational agricultural management, lowers the average rate of profit, and diverts from production a significant part of the social product, which is received by the landowners in the form of rent. Marx demonstrated that under capitalism, nationalization gives the state only the right to ownership of the land—that is, the right to receive land rent. Under capitalism, the bourgeoisie is the first and greatest beneficiary of the nationalization of the land; however, the proletariat also has an interest in nationalization, which eliminates the vestiges of feudalism and accelerates the development of capitalism in farming, with all its inherent contradictions. Under capitalism, nationalization of the land is directed at consolidating the position of the bourgeoisie and is carried out as a bourgeois reform. Because the bourgeoisie owns a significant percentage of the land and fears any infringement of its rights, it has not nationalized the land in any country.

Lenin showed that nationalization of the land is possible only in a young bourgeois state, because with the development of capitalism and especially with the advent of the age of imperialism, the interests of the financial bourgeoisie and the large-scale landowners grow together and become interwoven. Elaborating on Marxist theory on the agrarian question, Lenin emphasized that in bourgeois revolutions the nationalization of the land is a logical, democratic step that destroys the vestiges of feudal relations and creates broad opportunities for the development of productive forces in agriculture. Nonetheless, the times and forms of nationalization may differ greatly from country to country, depending on the degree of development of capitalism in agriculture, the correlation of class forces, and the existence of certain traditions in private ownership of land.

Nationalization of the banks is one of many measures designed to establish state-monopoly regulation of the economy. Because it is only partial, nationalization of the banks under capitalism does not affect the fundamental organizational principles of credit systems and does not lead to fundamental changes in their policies and structure and in their relations with other credit institutions. Large stockholders closely linked with finance capital remain on the boards of directors of the banks and continue to hold executive positions. As a rule, only banks of issue are nationalized. With rare exceptions, commercial banks remain in the private sector. For example, the Bank of England was nationalized in 1946, but Great Britain’s commercial banks were not nationalized. In France, which has the most highly developed state sector in the banking system, only four of more than 300 commercial banks were nationalized in 1945, along with the Bank of France.

The nationalization of private enterprises was practiced by many states in the 19th century. In Great Britain, France, Belgium, and other capitalist countries various industrial enterprises were nationalized during the 1920’s and 1930’s without the participation of the working class. The means of production were purchased directly from the bourgeoisie. Of course, capitalist production relations were not affected by this type of nationalization.

After World War II the nationalization of industry in a number of Western European countries was somewhat different at first. Under the political and economic conditions of that time the working class became the prime moving force in nationalization. A number of branches of production were nationalized in France between 1944 and 1946. The Communists, who were members of the French government, tried to carry out nationalization in the interests of the working people. The first step in this direction was taken in December 1944, when the mines in the major coal basin in the departments of Nord and Pas-de-Calais were nationalized. In January 1945 the Renault motor-vehicle plants, whose owner had actively collaborated with the Nazis during the occupation, were confiscated. The Gnome and Rhône aircraft plants were nationalized in March 1945. In 1946, France nationalized all large enterprises producing electric power and gas and completed the nationalization of the coal industry. Trade unions were admitted to membership on the administrative councils of nationalized enterprises. Nationalization made it possible to improve working conditions and to raise wages somewhat.

A bitter struggle over the nationalization of industry broke out in Austria after the war. As a result of the defeat of fascist Germany, there was an upsurge in the Austrian working-class movement. In mid-1945 the Austrian workers demanded the confiscation of the property of war criminals and the nationalization of industry and of the banks. Although it established rather extensive state capitalist ownership, the nationalization carried out under the laws of June 26, 1946, and Mar. 26, 1947, did not affect many key positions held by the Austrian monopolies and by foreign capitalists.

Between 1945 and 1951, Great Britain’s Labour government nationalized the coal, power, and gas industries. Communications enterprises were nationalized, as were the means of transportation, including the railroads, almost all air transport, and, in part, river and motor-vehicle transportation. Some of the metallurgical enterprises were also nationalized. The owners of the nationalized enterprises received substantial compensation.

In the developed capitalist countries the most widely nationalized branches of the economy are the railroads and air transport. Maritime, river, and motor-vehicle transportation have been nationalized to a lesser degree. Nationalization of the means of transportation is very common in Western Europe and Japan but less so in North America (the USA and Canada). In all the developed capitalist countries except the USA and Canada the main railroads belong to national companies (state or mixed ownership). All railroad companies in the USA are privately owned, and in Canada about half of the trunk network belongs to the state national company, which unites a number of railroads built by the state. In Japan and some Western European countries only the local railroads are privately owned. In all the developed capitalist countries (with the exception of the USA, where all airline companies are privately owned) most air transport is controlled by large national companies (state, and more rarely, mixed ownership). Maritime and river transportation have not been extensively nationalized, but internal waterways and sea and river ports usually belong to the state or to local government bodies. In a few of the developed capitalist countries, such as Great Britain and the Netherlands, there are state trucking enterprises, but they account for only a small part of the truck fleet and shipping. Bus transportation is much more widely nationalized. The main bus companies in the capitalist countries (except the USA) belong to the state or the municipalities. Much of the pipeline network in the developed capitalist countries belongs to private companies, but in Western Europe strategically important pipelines supplying NATO bases are state-owned.

The developing countries. In the developing countries nationalization is usually directed against foreign monopolies and the policies of neocolonialism. The nationalization of industrial and other enterprises creates a state sector that plays an important role in establishing and developing the national economy and in consolidating independence. In the developing countries nationalization is accompanied as a rule by an offer of compensation to the former owners.

Nationalization of the banks gives young states an opportunity to establish a national credit system and to free themselves of pressure from foreign capital. After gaining independence, most of the developing countries have established state banks of issue to regulate monetary circulation and implement government policy in the field of credit. As economic development progresses, many countries nationalize national private banks and other credit institutions, as well as foreign ones. In Syria, for example, the private banks were nationalized in 1961–63. In Burma they were nationalized in 1963. The 14 largest commercial banks in India were nationalized in 1969, and 42 large insurance companies were taken over in 1971.

With the implementation of agrarian reforms in the developing countries, some of the land has become part of the state sector. Extensive nationalization of the land has been held back by the landlords. In the developing countries the nationalization of transportation is an important means of combating domination by foreign capitalists, who once owned the primary installations and means of transportation. The nationalization of transportation promotes the development of the state sector and the achievement of economic self-reliance.

The two main obvious benefits of having nationalised utilities are that all utilities are owned by the state so revenue which is collected doesn't go abroad to foreign companies and that bills aren't inflated for the benefit of shareholders.

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